Improving Margins

Were talking about CPUs today, but you have to be pleased with the success of your memory business, especially after Q1. Your memory business outsold your computing business by about $50 million but brought in a lot less profit. Do you see that trend continuing, and do you want it to?
The thing were planning to do is to improve the margins on the memory side at a pretty good clip. We have some fairly aggressive goals to improve that. And if you look at our fourth quarter to the first-quarter improvements on those margins, that was a pretty significant jump. Even though its still off, were in the 20-ish gross margin, which is low. But we came from nothing. The market had completely collapsed.

So, we believe the combination of two things, the cost synergies of combining Fujitsu and AMD together [to form Spansion] are just now beginning to be realized. And theyll be realized very strongly in the second half of the year.

The other part is that technology transitionswere moving so rapidly on technology on flash that the cost benefit of that is humungous. So, we expect our margins to take significantly. But they will never be the same as processors. The business model is different. It takes only, roughly, 6 percent of sales in R&D to support flash. But it takes double that R&D to support a healthy microprocessor business .
However, in terms of operating profit, we think its possible to have similar operating profits with just different ways of getting there.
One could speculate that your positive net income could continue through the year if you were able to pull that off.

Thats certainly the plan.
Is Wall Street receptive to that?
I dont think we have credibility yet to get them to give us credit for that yet. We have to do it a few quarters in a row.
The European Commission announced recently that it is investigating whether the EU governments favored Intel over competitors, which is illegal under public procurement rules. How pleased were you about that?
Well, Im glad theyre finally taking a look at that because this is an archaic [issue]; procurement rules have been in place for a long, long time. And they havent been revisited in a long time. And therefore, they need to be brought up to date. And I think it will be good for everybody to have competition for government procurement and not be restricted to one CPU supplier.
How different is a procurement rule from a product certification process that a corporation establishes? How is it different from a government?
The thing with government is that since taxpayers pay for theirs, and taxpayers are employed by industry, so long as they meet the specs of the criteria, they cannot keep a particular competitor from bidding on government contracts. So long as they meet the specs of the criteria.
I think the same thing in industry; its no different, except the industry does it a little step in between and says, Anybody that meets the following specs is eligible to be qualified as a supplier. It means if you meet them in a market-driven capitalist society, you cannot legally keep someone from being considered.
From being considered.
Thats right. Thats all you want. You want to be considered. Today, were not able in some countries in Europe to be considered because the ... specs say it has to be an Intel-based machine.
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